Countrywide Mortgage Devastation Lingers as Ex-Chief Moves On

This month the Justice Department told Mr. Mozilo, the former chief executive of Countrywide Financial, once the nation’s largest subprime mortgage lender, that he was no longer under investigation in connection with civil mortgage fraud. The government’s criminal inquiry into Mr. Mozilo’s role in the financial crisis was dropped previously, so he is now in the clear.

At least that’s the view from Washington. On Main Street, where the pain of Countrywide’s reckless lending and abusive foreclosure practices still throbs, it’s safe to say that Mr. Mozilo is still identified as a major figure in the mortgage crisis.

Countrywide, a freewheeling mortgage machine co-founded by Mr. Mozilo and based in Southern California, was at the epicenter of the mortgage meltdown that in 2008 brought the nation’s economy to its knees. Perennially tanned and fond of flashy suits, Mr. Mozilo personified the home-lending good times that ultimately went bad. The decision by the government to close the book on Mr. Mozilo is something of a milestone and a moment to revisit the deeds of the company he co-founded.

Mr. Mozilo declined my request for an interview, as he has throughout the nine years I’ve written about Countrywide. His lawyer, David Siegel, emailed this statement, “The government conducted a professional and thorough investigation of possible civil claims, and we are pleased that it decided to close that investigation without another lawsuit.”

Ever since his company collapsed in 2007 and was taken over by Bank of America in a fire sale, Mr. Mozilo has steadfastly maintained that neither he nor Countrywide did anything wrong. The operation that he co-founded in 1969 and that made him immensely wealthy simply got caught up in a Force 12 financial gale.

Did Countrywide have a role in creating that storm? Not in Mr. Mozilo’s view. On the contrary, his company made America a better place.

“Countrywide was one of the greatest companies in the history of this country and probably made more difference to society, to the integrity of our society, than any company in America in the history of America,” he told federal investigators in a 2010 interview. “And that’s where I spring from.”

What about the thousands of loans with exploding interest rates made to unsophisticated borrowers who had no ability to repay them? The abusive foreclosure practices that increased the burden on struggling people? The shattered lives?

I asked Mr. Mozilo’s lawyer whether, years later, his client still believed that Countrywide had done nothing wrong.

“Mr. Mozilo always has been deeply troubled for the many borrowers who played by the rules and who still suffered during the financial crisis, and any implication otherwise would be unfair,” Mr. Siegel said in an interview on Thursday.

“He built Countrywide to help people purchase and stay in homes they could afford, and he was proud of the company’s success in doing that for many years,” Mr. Siegel said.

In the last week, I reread and listened to many of the interviews government investigators had with Mr. Mozilo after the financial crisis. In those conversations, Mr. Mozilo maintained that his company had strong ethical standards.

Privately, though, he took a more nuanced view, often recognizing missteps or troubling practices in his company’s operations.

In an email to a colleague written in April 2006, for example, Mr. Mozilo spoke critically about a situation in which Countrywide had to buy back problem mortgages it had sold to HSBC.

“The loans were originated through our channels with serious disregard for process, compliance with guidelines and irresponsible behavior relative to meeting timelines,” he wrote.

And they were not the only ones. Internal documents provided by a former Countrywide employee showed that as early as September 2004, lending audits in six of the company’s largest regions identified one in eight loans as “severely unsatisfactory” because of poor underwriting. And that was well before the housing boom.

Mr. Mozilo certainly succeeded in creating a profit powerhouse at Countrywide, at least for a while. One reason the company’s stock became a highflier is that Countrywide was a vertically integrated mortgage machine, with an array of subsidiaries poised to wring fees from every stage of the lending and loan servicing process.

Providing in-house appraisals, property maintenance, insurance and other services meant Countrywide could mark up the costs of its services, sometimes by more than 100 percent, the government found.

Such charges were at the heart of a June 2010 case brought by the Federal Trade Commission against the company. The agency’s determination? Countrywide overcharged almost half a million of its customers.

The strategy was intended to increase Countrywide earnings from default-related services during an economic downturn, the commission said. In other words, if profits from home loan originations fell, Countrywide could make up for it by increasing the burden on its most troubled customers. A choice statistic from this case: Countrywide charged some borrowers in foreclosure $300 to mow their lawns.

“It is astonishing that one single company could be responsible for overcharging more than 450,000 homeowners, which is more than 1 percent of all the mortgages in the United States,” Jon Leibowitz, then chairman of the trade commission, told me in a 2011 interview after Countrywide settled the case. Its business model was “based on deceit and corruption, and the harm they caused to American consumers is absolutely massive and extraordinary.”

Borrowers weren’t the only ones harmed by Countrywide. The company also ran roughshod over the nation’s bankruptcy court system.

In early 2008, Donald F. Walton, then the United States trustee for the Atlanta region, filed suit against Countrywide over a 2005 bankruptcy filing involving John Wayne Atchley and Robin April Atchley, homeowners in Waleska, Ga.

Countrywide, the servicer of the Atchleys’ loan, levied improper fees and claimed twice that the borrowers were behind on their mortgage when they were not. Lawyers for Countrywide moved to seize the Atchleys’ property, withdrawing only after the couple proved them wrong in court.

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Dan Bailey at his home in Wilmington, N.C.CreditBriana Brough for The New York Times

“Countrywide’s failure to ensure the accuracy of its pleadings and accounts in this case is not an isolated incident,” Mr. Walton wrote in a brief. “In recent years, Countrywide and its representatives have been sanctioned for filing inaccurate pleadings and other similar abuses within the bankruptcy system.”

In western Pennsylvania, a court found that the company had fabricated documents related to a borrower’s bankruptcy. The documents, supplied to the court, erroneously claimed that a borrower owed $4,700 for escrow-related costs.

In 2008, Countrywide agreed to pay $325,000 to the Chapter 13 bankruptcy trustee in Pittsburgh, settling a matter that accused it of abusive practices in almost 300 mortgage loans overseen by the court.

Howard Rothbloom, a lawyer in Marietta, Ga., who defends consumers in bankruptcy, represented the Atchleys in their fight against Countrywide.

In a recent interview, I asked him about Countrywide’s impact on his world. He found a silver lining: The exposure of the company’s practices, he said, helped improve the bankruptcy system for consumers.

“The Atchley case highlighted the abuses and caused the system to be changed,” he said. “The system works a little differently now and is a little fairer.”

Well, that’s something.

Next, I wanted to check in with some former Countrywide borrowers to see where they stood eight years on.

One was Daniel A. Bailey Jr., now a veterinary technician living in Wilmington, N.C. Mr. Bailey, 49, shot to prominence in 2008 when he received an inadvertent email from Mr. Mozilo blasting him for asking for Mr. Mozilo’s help in modifying his loan.

“This is unbelievable,” Mr. Mozilo wrote in the message, which quickly ricocheted across the web. “Most of these letters now have the same wording. Obviously they are being counseled by some other person or by the internet. Disgusting.”

In an interview Wednesday, Mr. Bailey said he considered himself very lucky because Bank of America worked out a deal with him to stay in his 900-square-foot bungalow. Nevertheless, it took the better part of seven years, he said.

“I lucked out,” Mr. Bailey said. “If I had been any other person, I would be out of my house and living on the street. I’m part of the 0.0001 percent because everybody else this happened to didn’t get that email from Mozilo.”

I also contacted Jane Connor, of Arlington, Mass., who teaches at the Massachusetts Institute of Technology. I wrote about her mortgage woes in September 2007 after she had tried unsuccessfully to get Countrywide to let her sell her house for less than the amount outstanding on the mortgage, known as a short sale. Ms. Connor fell behind on her loan after her husband lost his job and she became ill.

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Jane Connor in 2007 with her husband, Neal and their daughter, Annie, outside their home in Arlington, Mass. CreditJodi Hilton for The New York Times

“I spent months on the phone every day trying to get someone to help me sell,” Ms. Connor said in an interview Tuesday. “They ignored us, and every month that went by our indebtedness grew.”

It was only after I asked Countrywide about Ms. Connor’s situation that the company started working with her to sell the house.

How is her life today? “I know that I ended up pretty well because I was really lucky and really stubborn on a couple of fronts,” she said. “I think about how many families out there didn’t have the kind of luck and stubbornness that I had.”

Ms. Connor said she is looking forward to Aug. 20, when the record of her personal bankruptcy will disappear from her credit report.

Mr. Mozilo doesn’t have such worries. But he did get dinged by the federal government in one matter: the S.E.C.’s suit, which he settled in October 2010.

Regulators contended that Mr. Mozilo and two of his former lieutenants hid growing risks in Countrywide’s operations from investors and generated improper profits on stock sales while aware of Countrywide’s woes.

From November 2006 through October 2007, the commission said, Mr. Mozilo generated $140 million in gains on stock he sold.

Without admitting or denying the accusations, Mr. Mozilo settled the case and accepted a permanent prohibition on serving as an officer or director of a public company. He paid $67.5 million to the government, $45 million of which was covered by Countrywide and Bank of America.

The roughly $22 million Mr. Mozilo personally paid pales in comparison with the gains he reaped from Countrywide stock over the years.

And that doesn’t even begin to compare with the money Bank of America doled out, first to acquire Countrywide for $4 billion, and then more than $50 billion in fines and settlements with the government over mortgage abuses, though, in fairness, not all of it was because of Countrywide.

Finally, I asked Mr. Siegel whether Mr. Mozilo believed he had been held to account for Countrywide’s actions. “There were many lawsuits and government investigations,” he replied in a statement. “We prevailed in those that reached final decisions, a number were settled (including the S.E.C.’s lawsuit), and the Department of Justice’s investigation closed without further claims.”

Still, there is an overarching failure that Mr. Mozilo cannot deny.

In a November 2007 deposition with the S.E.C., he was asked to describe his responsibilities as the chief executive of Countrywide. “The primary responsibility” he said, “is make sure the company is O.K., that it’s maintained its financial integrity and its reputational integrity.”

Clearly, he flunked those three tasks. And even in Mozilo world, that’s still got to smart.

Twitter: @gmorgenson

A version of this article appears in print on , on Page BU1 of the New York edition with the headline: Time Doesn’t Heal Wounds of Bad Loans. Order Reprints | Today’s Paper | Subscribe